US dollar approaches 7-month high, trade tensions limit gains

[TOKYO] The dollar edged up towards a seven-month high against a basket of its peers on Monday after the market digested a flurry of news, although U.S.-China trade tensions slowed its gains.

The dollar index versus a basket of six major currencies crept up 0.1 per cent to 94.882.

The index was in reach of 95.131, a seven-month peak scaled on Friday when it soared more than 1 per cent last week after the US Federal Reserve gave a hawkish signal on interest rates while the European Central Bank struck a dovish tone.

In addition to policy meetings at the Fed, the ECB and the Bank of Japan, the currency markets last week faced a US-North Korea summit and renewed trade tensions between the United States and China.

The greenback navigated through those events, last of which was a decision by the United States on Friday to enact tariffs on US$50 billion in Chinese goods and Beijing's vow to respond in kind.

"The reaction by currencies to the trade developments has been mostly limited as the US measure and China's response were in line with expectations," said Yukio Ishizuki, senior currency strategist at Daiwa Securities in Tokyo.

"A further escalation of US-China trade tensions is of course a risk scenario. But the current tariffs, even if implemented, will hardly dent the global economy and the market also has to ponder about a scenario in which the two countries try to diffuse tensions."

The US currency managed to limit is losses against the yen, a rough gauge of broader risk appetite because of the yen's perceived status as a safe haven in times of market turmoil and political tension.

The dollar was down 0.1 per cent at 110.500 yen after brushing a three-week high of 110.905 on Friday.

The euro slipped 0.2 per cent to US$1.1585, extending losses after sliding 1.3 per cent the previous week after the ECB signalled it will keep interest rates at record lows well into next year.

The Australian dollar was 0.15 per cent lower at US$0.7426 and the New Zealand dollar lost 0.35 per cent to US$0.6922.

REUTERS